Japan Minister: Bank of Japan’s monetary policy ‘has not been wrong’

TOKYO (Reuters) – Japanese Economy Minister Nobuteru Ishihara said on Thursday the Bank of Japan’s monetary policy “has not been wrong” although the central bank has failed to reach its 2 percent inflation target.

“It’s definitely not deflation, if you look at core-core” inflation index, which excludes food and energy prices, Ishihara told reporters a day after Prime Minister Shinzo Abe appointed him to continue as economy minister in the new cabinet.

“That’s why we need an economic stimulus now, and rev up the engine to escape (deflation).”

Earlier this week, the government finalised a fiscal spending package worth more than 28 trillion yen ($275.9 billion) to kickstart growth, which some economists say keeps pressure on the BOJ to pursue monetary policy in tandem with government spending.

The BOJ disappointed the market last Friday when it decided against increasing government bond purchases or further lowering negative interest rates, cementing the view that it is running out of options.

Speaking at a separate event on Thursday, BOJ Deputy Governor Kikuo Iwata reiterated the central bank’s readiness to ease policy again if needed.

Iwata echoed Ishihara’s comment, saying monetary policy has “contributed to pulling Japan out of deflation” although the bank has not met the 2 percent price target.

Ishihara also said it was important to keep a firewall between the government and the BOJ to ensure the central bank’s independence while the two work together to defeat deflation and spur economic growth.